WIOF India Performance Fund Featured Fund (1. – 31. 3. 2016)

29.02.2016

The award-winning WIOF India Performance Fund offers the chance to invest in one of the fastest-growing economies in the world led by a government whose zeal for reform has boosted confidence in the country’s economic future both at home and abroad. The Fund, which was named Equity Fund of the Year 2014 in a survey of Slovak mutual funds by Slovak financial company Fincentrum and international finance magazine Forbes, holds a 5-star rating from Morningstar international fund ratings agency for its performance over the last five years (as of 31.12.2015).

WHY INDIA?

Over the last decade investors have become increasingly aware of India’s potential. Already the third largest economy in the world in purchasing power parity (PPP) terms, economists have for years been pointing out the strong fundamentals underpinning its growth. These include an expanding and increasingly affluent middle class driving domestic consumption; positive demographic and employment trends - a total available workforce of 750 million people and 13 million entering India’s urban workforce each year – as well as, among others, plans for development of financial markets and a focus on infrastructure projects.

But following elections in 2014 and the appointment of reform-championing Narendra Modi as Prime Minister, India has become one of the world’s most exciting investment destinations: the economy is set for a transformation and local stock markets are being tipped for strong, long-term gains as investment flows into the country, confidence in India’s economic future rises and companies benefit from growth.

Indeed, Modi’s election was seen as the driving force behind a stellar year for Indian equities in 2014. Two of the country’s benchmark indexes, the Sensex and Nifty, performed outstandingly in 2014 – the former gained 32.9% for the year and the latter 33.4%. This was put down by many to the “Modi effect” as domestic and international investors were enthusiastic that his election meant that the economy would be quickly overhauled.

As Umesh Gupta, Fund Manager at Reliance Wealth Management and portfolio manager for the WIOF India Performance Fund, says: “The election result was a big boost for market sentiment in India. Prior to the elections, markets had posted almost zero returns for 5-6 years. The investor community had always been optimistic about Mr. Modi.”

PERFORMANCE (USD)

REFORMS AND REBRANDING

Immediately after elections, the prime minister’s international drive to rebrand India as a dynamic, high-growth economy, included him visiting the world’s largest economies, wooing leaders, brokering trade deals and helping to attract FDI, agreeing investment deals with foreign governments worth tens of billions of USD. The country received an estimated USD23bn in capital expenditure on inward investment projects in 2014 and a 47% increase in the number of projects, at 641. Its major Asian, and probably soon global, rival, China, overall still attracted more FDI projects and their total worth was greater than those in India, the growth in the number of new FDI projects in China was only 4%.

Key reforms have also been made, including:

Budget pledges to increase spending on infrastructure and slash the corporate tax rate to 25% in the coming four years.

Liberalisation of the key mining sector with new legislation allowing the government to auction mining licences.

The removal of direct investment caps in insurance and defence.

Meanwhile, Modi’s government has also delivered other changes which are expected to have profound long-term ramifications for the country, including re-defining India’s subsidy mechanism, tackling the model of crony capitalism that has historically blighted economic and business development in India and shifting India’s savings landscape to the financial system with the Jan Dhan initiative to open a bank account for every family in the country. The latter is crucial in that it brings people into the banking system, making transactions accountable and reducing the amount of ‘black’ money in the country’s economic system.

GDP (% CHANGE)

WINNING PERFORMANCE

The positive sentiment which fed through to markets and sent Indian equities soaring was reflected in the Fund’s performance in 2014 – it delivered a stunning annual return of 81% (in EUR) for the year and had double the returns of the country’s main indexes such as the Sensex and Nifty (in USD). Its return for the year was 30% higher (in USD) than the MSCI India index. On top of all this, it was also one of the best performers among its peers in 2014, outperforming 95% of funds in Morningstar’s India Equity category as well as being named Equity Fund of the Year 2014 in a survey by global finance and business magazine Forbes of more than 800 mutual funds on the Slovak market.

But this was far from all down to the dramatic rise on local stock markets. As Mr Gupta explains: “The fund’s performance was possible because of the bottom-up stock-picking philosophy which we employ. We try and stick to the key financial matrix of good, sustainable sales and earnings growth, healthy return ratios and low debt. The philosophy helps us to remain agnostic to sectors, macro news flows and market cap. We were focused on picking out the right businesses and investing in them at reasonable valuations.”

2015 proved to be a less successful year for Indian stocks. Its main equity indices closed the year around 4%-5% lower against a backdrop of a global commodities rout and slump in oil prices, as well as the inevitable waning of the “Modi effect”. But, say the Fund’s portfolio managers, this consolidation was not unexpected and does not detract from a very bright longer-term investment outlook.

“Markets rallied almost 69-70% from lows in August 2013 to highs in January 2015, but this very sharp rise came without corporate earnings following suit. Investors realised this. With a higher index base and earnings yet to show traction, markets have consolidated. This is not unexpected,” says Mr Gupta.

He adds that this consolidation will “create opportunities for attractive entry points in good stocks” and that “we remain enthusiastic about investing in India at the current time with an investment horizon of three or four years ahead”.

OUTLOOK

2015 was a difficult year for many markets and headline Indian indices posted negative returns - although even then there was some good news as small and mid-size businesses performed well (the BSE Mid-Cap Index was up 6.5% for the year). However, 2016 is expected to be better. Although concerns over global growth, tumbling oil prices and plunging commodities affected markets across the world at the start of this year, the outlook for India is bright. Externally, commodities, especially crude prices, have favourably supported the country’s fiscal position, thereby providing firepower to the government to kick-start the capex cycle and attract massive foreign capital with India appearing as an oasis of growth across the globe. Meanwhile, the government’s confidence-building measures over the last year, such as energy reforms, bank recapitalization, and allowing FDI in several sectors, as well as increased expenditure on infrastructure coupled with declining interest rates, should allow India to outperform major developing economies.

What is important though is the medium and long-term picture, which remains a strong one. Investors remain positive on India’s economic future and high-profile trade agreements with major foreign partners underline the government’s commitment to strengthening the economy and attracting inward investment. The portfolio manager remains bullish on long-term investment prospects.

INVESTMENT ADVISER

The Fund’s investment adviser is Reliance Wealth Management Ltd. Part of the Reliance Anil Dhirubhai Ambani Group, Reliance Wealth Management Ltd is a niche provider of investment products to institutions, investment companies and high net-worth individuals in India and overseas. Its primary focus is on creating custom equity portfolios as segregated mandates and delivering value to clients.

IMPORTANT NOTE:This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser/legal adviser/tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser/legal adviser/tax adviser, they should consider whether the WIOF is a suitable investment for them.